Question

4.7 An irrigation return flow drain has sampling equipment that can be powered by solar cells or by running an electric line to the site and using conventional power. Solar cells will cost $14,000 to install with a useful life of 10 years. Annual costs for inspection, cleaning, etc. are expected to be $1500. A new power line will cost $12,000 to in- stall and the power costs are estimated at $600 per year. The salvage value of the solar cells is expected to be 25% of the first cost when the sampling project ends in 4 years. The electric line will stay in place, so its salvage value is considered to be zero. At an interest rate of 10% per year, which alternative should be selected?!

Answer 1

NPW of solar cell = -14000 - 1500 * (P/A, 10%,4) + 0.25 * 14000 * (P/F, 10%,4)

= -14000 - 1500 * 3.169865 + 0.25 * 14000 * 0.683013

= -16364.25

NPW of electric line = -12000 - 600 * (P/A, 10%,4)

= -12000 - 600 * 3.169865

= -13901.92

As the Net present cost of elcteric line is less, it should be selected